Turkey and Israel are set to revive their diplomatic relationship after reaching a preliminary agreement, officials said.

The diplomatic ties had gone sour after Israeli military forces boarded the ship Mavi Marmara on 31 May 2010 which had dozens of Turkish activists aboard and was seeking to breach the Israeli naval blockade of the Gaza Strip to bring aid.

The Israeli commandos killed nine activists in their operation and later a tenth one succumbed to his injuries.

Now, with Russian military forces in Syria and tensions on the rise between Turkey and Russia after the former shot down a Russian fighter jet recently, Turkey is seeking to rebuild its shattered relationship with Israel..

A senior Israeli officer, speaking on condition of anonymity, said that a compensation fund of $ 20 million for the killing of the Turkish activists aboard the Mavi Marmara is being planned by Israel.

Emmanuel Nahshon, a spokesman for the Israeli Ministry of Foreign Affairs, said that the amount has not been decided on, but did not deny that the fund was being created.

In return, Turkey is to drop the criminal charges against the Israeli officers who were involved in the violent incident. 

The two countries will also exchange ambassadors. And, in terms of business, a natural gas pipeline from Israel to Turkey is being planned.

"Israel has always aspired to stable relations with Turkey and is constantly examining the ways to achieve that goal," said Dore Gold, the Director General of Israel's foreign ministry.

Prior to that Turkish President Recep Tayyip Erdogan said that it "would be good for us, Israel, Palestine and the entire region" to live peacefully.

The agreement is yet to be signed.

The agreement fruitioned from a meeting held in Switzerland that was attended by Israeli Prime Minister Netanyahu's national security adviser, Yossi Cohen and a special Israeli envoy, Joseph Ciechanover and Feridun Sinirlioglu, a senior Turkish diplomat as reported by The New York Times.

"We would welcome this step in improving relations between two of our key allies in the region, particularly given our common interests and the challenges we face," a senior US official said.